Praising GST and Bankruptcy Code, IMF predicts 7.3% growth for India in 2018

While praising GST and Bankruptcy Code, the International Monetary Fund (IMF) on Tuesday predicted a growth rate of 7.3 percent for India in the current year and that of 7.4 percent in 2019.

In its latest World Economic Outlook report, the IMF said, “India’s growth is expected to increase to 7.3 percent in 2018 and to 7.4 percent in 2019 (slightly lower than in the April 2018 World Economic Outlook [WEO] for 2019, given the recent increase in oil prices and the tightening of global financial conditions), up from 6.7 percent in 2017.”

The IMF further stated that this acceleration reflected a rebound from transitory shocks (the currency exchange initiative and implementation of the national Goods and Services Tax), with strengthening investment and robust private consumption.

“India’s medium-term growth prospects remain strong at 7.75 percent, benefiting from ongoing structural reform, but have been marked down by just under 0.5 percentage point relative to the April 2018 WEO,” the world body added.

The IMF also said that inflation in India is on the rise.  It estimated inflation in India at 3.6 percent in fiscal year 2017/18 and projected at 4.7 percent in fiscal year 2018/19, compared with 4.5 percent in fiscal year 2016/17, amid accelerating demand and rising fuel prices.

The report, however, asserted that aggregate growth in the emerging market and developing economy group stabilized in the first half of 2018.

Notably, if the predictions are true, then India will regain the tag of fastest-growing major economies of the world, crossing China with more than 0.7 percentage point in 2018 and an impressive 1.2 percentage point growth lead in 2019. China was the fastest growing economy in 2017 as it was ahead of India by 0.2 percentage points.

Importantly, the IMF has lowered the growth projections for both India and China by 0.4 percent and 0.32 percent, respectively, from its annual April’s World Economic Outlook.

“In China, growth is projected to moderate from 6.9 percent in 2017 to 6.6 percent in 2018 and 6.2 percent in 2019, reflecting a slowing external demand growth and necessary financial regulatory tightening,” the report said.

It also said, “The 0.2 percentage point downgrade to the 2019 growth forecast is attributable to the negative effect of recent tariff actions, assumed to be partially offset by policy stimulus.” “Over the medium term, growth is expected to gradually slow to 5.6 per cent as the economy continues to make the transition to a more sustainable growth path with continued financial de-risking and environmental controls,” it noted.

“Owing to these changes, our international growth projections for both this year and next are downgraded to 3.7 percent, 0.2 percentage point below our last assessments and the same rate achieved in 2017,” the report noted.

The growth rate of the United States for 2018 is 2.9 percent and that of 2019 has been projected to 2.5 percent.

“Emerging Asia continued to register strong growth, supported by a domestic demand-led pickup in the Indian economy from a four-year-low pace of expansion in 2017, even as activity in China moderated in the second quarter in response to a regulatory tightening of the property sector and non-bank financial intermediation,” the report read.

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